Is this the end of the daily letter delivery?

Anyone paying attention would be aware that Australia Post has been in financial trouble now for a couple of years. Actually they have been in some kind of financial trouble on-and-off for about fifteen years. They have had a couple of good years here and there, but the financial trouble of the last few years starts with a capital "T".

From 9News. Image links to the source.

From 9News. Image links to the source.

The primary issue is that people are sending less and less letters, and the money made from the letter business is the financial foundation of Australia Post.

The letter post volumes for 2012 were the lowest ever in relation to population, but then they went even lower in 2013, and, you guessed it, revenue from the letter business was even lower in 2014.

Australia Post has been pestering the government for a decent letter post rate rise for about nine months now, but so far with no rate increase being approved.

While Australia Post, like most other parcel post businesses, is making some good money out of the parcel business—due to more and more people buying over the Internet—this profit is being burnt up propping up the letter business. Other parcel post businesses like DHL, FedEx, and Toll don't have a loss business in letters burning up their profits. This puts Australia Post in a tricky and unenviable position. They don't have the option of not providing the letter delivery service.

So what are the options. As I see it the options are:

  • The federal government allows for a hefty increase in the letter postage rates; but the possible downside of this is that the letter business could then nose-dive even more as people react to the higher rates of postage.
  • The federal government subsidises Australia Post by whatever the loss on letter postage is. This is likely to be around a billion dollars a year in the first five years and it will go up from there.
  • The federal government allows Australia Post to sell the letter business off to someone who thinks they can make money from it somehow. Maybe someone like Japan Post who just recently bought Toll?
  • The federal government allows Australia Post to make some radical changes to the letter post business to try and cut back on the losses. One such proposal by Australia Post is to stop the daily door-to-door delivery of letters in cities and major towns. Australia Post is suggesting that the daily deliveries be reduced to two deliveries a week.

It will be interesting to watch this and see what changes are made. I suspect the final solution will be a combination of higher letter rates and reduced letter delivery services.

Barry.